What Is Title Insurance And Why Do I Need It Anyway?

If you are interested in joining the ranks of successful women in real estate, it is important that you come to a complete understanding of the fundamental elements associated with real estate investing. Yes, few people find the intricacies of title insurance exciting and many feel it’s down right boring. However, if professional women have learned anything over the course of the past few decades, it is that knowledge is power. In this regard, one of the most important elements of the real estate investment process is to understand how title insurance works.

So, read on and learn.

Title insurance is exactly as it sounds. It insures you in case that at some later date, a recorded or unrecorded document surfaces that can affect the title of the property you purchased. Putting it simply, a title insurance policy insures the ownership of the property, and protects you as the owner.

Before providing a title insurance policy, the title company examines, summarizes and classifies every document affecting the property and its previous owners. Highly skilled title searches assemble this material and forward the results to a title officer. The title officer or examiner then writes an opinion on the title. The opinion will initially take the form of a preliminary title report and ultimately become a policy of title insurance.

Although title insurance is designed to protect a purchaser of real estate against title defects that are discovered after that individual takes title to a piece of property, the real work of a title insurance company is actually undertaken in advance of the closing on the sale itself. After a real estate sales contract is executed between a seller and purchaser, a preliminary title search is performed and then a policy of title insurance is obtained.

This means that the title insurance officer physically evaluates the deed to the property, and then reviews all of the liens and encumbrances that have been filed against that deed over time. This effort by the title insurance company is designed to ascertain that any liens or other encumbrances that may have been placed against the property in the past have been released.

Any liens or encumbrances remaining on the deed or title to the real estate subject to sale will prevent the buyer to obtain “clear” title because every questionable item recorded on title is classified as a defect or “cloud” on title. One of the essential clauses in real estate sales contracts requires the buyer to deliver “clear” title of the property to the purchaser by a certain date. Therefore, the title insurance company will take all necessary steps to clear up any “clouds” on title within the time frame mandated by the contract for the sale of the property.

As mentioned, if for some reason there is a defect on title – a lien or encumbrance not discovered before the new deed is recorded – the title insurance company is responsible for any loss sustained by the real estate purchaser because of that title defect. In most instances, the loss sustained amounts to legal fees and court costs associated with taking action to clear the defect.

If the purchaser or real estate investor does not have adequate title insurance, she is the one who sustains the loss. This is why it is vital to forgo standard title insurance and invest in extended coverage policies with every one of your transactions.

Top SEVEN ways your property can be put at risk:

Your property can be put at risk in a variety of ways. If your property does not have clear title, any questionable recorded or unrecorded documents may have been executed many years before, yet surfaced much later. In this case, know that you are protected by title insurance. Below are seven common items that can put your property risk.

1. Forged deeds, mortgages, satisfactions or releases

2. Deed by person who is insane or mentally incompetent

3. Deed by a minor

4. Deed from a corporation, unauthorized under corporate bylaw

5. Deed by partnership, unauthorized under partnership agreement

6. Deed given under fraud or duress

7. Deed executed under falsified power of attorney

Top SEVEN things to look for:

If any of the following items appear on the preliminary title report, you must take immediate action. The first step is to contact your title company. Failure to investigate any of the following may cause a significant delay in closing of escrow and/or decrease your profit.

1. Tax Liens

2. Mechanics Liens

3. Notice of Action/Judgments (including back child support)

4. Bankruptcies

5. Uninsured Deeds

6. Legal Access to and from the subject property

7. Typos in the legal description and/or parties’ names

Two Separate Policies

Nearly every sale of a residential property involves the purchase of two separate policies of title insurance. One policy names the buyer as the interested party and the second names the lender as the insured party. It is customary for the seller to provide and pay for a title insurance policy on behalf of the buyer. This is done so that the buyer can be assured that the property does indeed belong to the seller and that there are no unexpected liens or encumbrances against it. If the buyer borrows money to purchase the house, it is normally a requirement of the loan that the buyer purchase title insurance on the lender’s behalf for the amount of the loan and sometimes for the amount of the entire sales price.

One-time Investment

The purchase of a tile insurance policy is single purchase transaction. You pay one premium, and the policy stays in force until you sell or refinance your property. There are no recurring fees. Premiums for the title insurance policy are usually based on the amount of risk assumed by the insurer. The liability is based on the sales price of the property, or, in the event of a lenders policy, on the amount of the loan.

In conclusion

It would be to your benefit as a woman investing in real estate, to have a working relationship with a helpful and motivated title representative whose sole purpose is to sell title policies on behalf of his or her employing title insurance company. Find out what he or she is willing to do in order to earn your business.

- Will the company allow you access to their public record database?

- Can you request and receive copies of recorded documents?

- Will the company create property profiles for your hot deals?

- Can the company set up a farm (territory) to help you generate leads?

Ask ahead of time. A good working relationship with a title insurance company enables you to conduct business efficiently. In simple terms, everyone investing in real estate must know the specifics and the complexities of title insurance and the benefits of building a solid relationship with a good title representative.